InFocus: The Return of the Asian Food Crisis – What is happening and why?

Soaring rice prices, growing food lines, angry voters and even food riots are again realities in Asia. More than 30 years have passed since the global food crisis of the mid-1970s hit Asia. In the Philippines, President Gloria Macapagal-Arroyo is presently facing a situation reminding of the one her father, President Diodado Macapagal, was preoccupied with in the mid-1960s. Then as now, the country experienced major shortages in its staple crop rice and was relying heavily on imports. Some observers claim that the inability of Macapagal’s regime during the first half of the 1960s to avoid food scarcity contributed to its failure to be re-elected in the 1965 election when instead Ferdinand Marcos came to power (Djurfeldt & Jirström 2005). Presently, the Philippines, being one of the world’s largest importers annually importing 10-15% of it rice, is at the centre of the Asian food crisis. In April 2008, the Arroyo government threatened rice hoarders with life imprisonment.

The rising cost of rice is affecting consumers differently across Asia, but, as always, it is the poor, who often spend 30-40% of their incomes on rice alone, that are most severely hit. Not only in importing countries such as the Philippines, Bangladesh and Malaysia (and of course in Africa where the consumption and import of rice has increased rapidly during past decades) does the soaring price cause hardship. Also in exporting countries such as India and Vietnam, the price hike implies prospects of increasing rates of malnutrition for the poorest. Government budgets are being stretched to pay for food subsidies and food inflation is causing political concern. As was the case in the 1960s and 1970s, many Asian governments are keeping a close watch on the rice price as a measure of potential unrest. Between December 2007 and April 2008, the world price of Thai rice, 5% broken, – a popular export grade – almost tripled from approximately USD 360 per ton to USD 1000.

Partly, the current price hike is caused by export restrictions introduced by some of the major exporters such as Vietnam and India. Although criticized for taking these measures by for example the Asian Development Bank, governments in populous countries with a large share of their population being dependent on a stable and low price of rice consider the political risk associated with food scarcity as too important to refrain from market interventions. Rice continues to be a political commodity in Asia.

The international rice market, unlike the wheat market, is a rather thin commodity market with only approximately 5-7% of total production entering it. Sudden changes in supply or demand may consequently cause substantial price changes. Over the past 7-8 years, the rice stocks of major countries such as China and India have been gradually depleted and while this has moderated the rise in price during recent years, we cannot expect this dampening effect on the price in the future. Adding to the short-term changes in supply is a number of contributing factors: the collapse of Australia’s rice production due to drought, the major flooding in Bangladesh in 2007, the rise in the price of oil affecting the price of fertilizers – which is essential for rice production, – as well as motorized farm operations and transportation, and, finally, severe pest and disease outbreaks since 2005 in countries such as Vietnam, China, Indonesia and Japan. In addition, the price of rice is affected by the increasing price of other staple crops. An important factor at play is the ongoing diversion of agricultural land from food and feed production to bio-fuel production, especially the maize-based ethanol production in the USA. On the demand side, big speculations in the international commodity markets by new financial players abandoning stocks and real estate are throwing fuel on the fire. In several countries hoarding by traders for speculative purposes has a similar effect.

However, to understand the present situation it is important to look at some of the underlying long-term reasons for the rice crisis. Starting in the mid-1960s, the Green Revolution which combined the introduction of modern high-yielding rice technology with agricultural policies promoting rapid agricultural growth set Asia on a steady and rapid growth track in staple crop production. The production success was so dramatic that after 20 years of rapid output growth, the world market price of rice plummeted in the mid-1980s and then continued to decline until 2001. During this period a feeling of complacency seems to have spread among governments in the region – food security at a national level seemed to be less of a problem and lower prices were taken for granted. Public investments, including those by international donors, in agricultural research development dropped steadily during this period. The lack of investment is an important factor accounting for the slowdown in yield growth.

Presently, we are consuming more rice than we are producing. Population growth in rice consuming countries is part of the explanation but an even more important factor is the income driven growth in demand for cereals for both consumption and livestock production in booming economies such as China and India. These long term reasons behind the present situation call for a renewed focus on agricultural development in the region. Any increase in production will have to come through yield growth as the opportunity for increasing the total rice area is very limited. The competition for land and water resources with other sectors of the economies will be a major challenge in what many now call for – a second Green Revolution in Asia.

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